Differences in the spot exchange rate and the 30-day forward rate are normal and reflect the expectations of the foreign exchange market about future currency movements.

Question

Quizplus · Accepted Answer

The spot exchange rate and the forward exchange rate represent the current and future exchange rates, respectively. Differences between the two reflect the market's expectations about future currency movements, such as changes in interest rates, inflation, and political factors. Therefore, it is normal for there to be differences between spot and forward rates.

Differences in the Spot Exchange Rate and the 30-Day Forward